My Home Appraised Below Purchase Price, Now What?
As your trusted Westlake realtor, we know the importance of an appraisal. A low appraisal can really end up making or breaking a deal. The reason for an appraisal in the first place is that lenders use the appraised value to calculate a loan-to-value ratio. This LTV ratio must stay within specific guidelines depending on what loan you are moving forward with. It is important to remember that the appraisal affects the loan-to-value ratio not the purchase price.
If an appraisal comes in low this decreases the amount the bank is willing to loan because it lowers the loan-to value. For example, if you are purchasing a home that is $200,000 with an FHA loan the max loan-to-value is 96.5% meaning that the greatest loan possible is $193,000. The rest of the purchase price will be made up with the down payment. However, if the appraisal comes back at $190,000 instead of $200,000 the bank can now only lend up to $183,350 because of the 96.5% loan-to-value. This now leaves the buyer short $9,650.
In the event of a low appraisal there are always four options available. The first option is to renegotiate the purchase price down to the appraised value. The second option is that the buyer has to put more down to make up for the deficit. The third option is that both parties can decide to cancel the contract entirely. The last option is to try and refute the appraisal with concrete evidence as to why the home is in fact worth the purchase price. This may include bringing forth evidence that was not previously shown at the original appraisal. As your trusted Westlake realtor our entire team is extremely familiar with the appraisal process. If you have any questions, we are always here to make sure you are comfortable with the process.